Is Your Online Store Barely Making Money?

Brad Beiermann Ph.D. How many of you online store owners love selling items with higher profit margins? Higher margins, means more money in your pocket, right? If you are the smart business owner, you have answered yes to both questions. One more question for you.

Why did your customer buy these higher margin, and often higher priced, items from you? Okay, now the answers start to vary.

In truth, customers buy for their own reasons, not ours. We might think we know why they bought it with a certain degree of accuracy, but do we ever really know their innermost reason for why they made the purchase? In fact, most experts will be quick to point out the fact, we never really know 100%. The reason they buy, is often different than reason we thought. No matter what you are selling on your online store, your customer will only buy two things: 1) Solutions to problems, and 2) Good feelings. The rest of this article will focus on the «good feelings» part. When your customer buys from you, they generally feel good about it in some form or another. Proof…Would you spend your money on something (or someone) you did not feel good about? Of course not, we want to feel good about the things we buy. Your customers are no different. So, what is making these folks feel good about buying from you? In short, it is trust. Good feelings come from trust and the secure feelings that come with it. Trust is something earned without a fixed time period. In other words, trust can be built quickly, or it can take a long time to be built. With a product, trust is often built in the form of value. They ask themselves, «Is this a good deal?» If the answer is «Yes» the odds of a transaction occurring goes up greatly. If the answer is «No», you have not won any good feelings or trust from them.

Let’s take a look at this thing called «value» and how it is perceived by your customer. What exactly is perceived value? By dictionary definition — It is the state of worth recognized by interpretation of sensory stimuli based chiefly on memory insight, intuition, or knowledge gained by the senses. Whew! That’s a bunch to grasp in one reading of that sentence. For the rest of us non-Mensa members, let’s simplify. Perceived value is someone’s gut feel about the worth of a product. It’s our own appraisal based on what we know. The original definition mentions words like sensory, senses, and memory. This suggests we, and our customers, get perceived value from our surrounding environment, or the things we have been directly exposed to in the past. Customers have this inherent feeling before they come to your online store. If you are able to recognize this fact, you are in a much better position to understand your market. If perceived value is ignored during your pricing strategies, that could spell trouble. Last year I helped a friend with a trade show he was having with one of his new products. He had the product, a very unique household lamp, patented and had it being made in the USA for just a few dollars labor. Not bad. The parts used in the lamp brought it’s wholesale price close to eighty dollars. Still, not bad considering this was a unique custom made piece retailing at three hundred dollars. The product was being offered on his website, the number of inquiries and emails he was receiving about the product was mind boggling, literally hundreds a week. This was just for one lamp! It sounded like he had a hit on his hands. During the four day trade show, thousands of people stopped by the booth and marveled at this product. There were people stopping by the booth just to see what all the attention was about. Several TV news stations stopped by the booth to film the product and interview it’s inventor. Customers wanted this product real bad. As the trade show came to a close on its last day, how many units were sold? Zero…None…Nada.

Ouch! What happened? The number one comment from customers, «That is awesome!» or «Brilliant!» or «I gotta get one!» The number two comment from customers «Why is this thing so darn high in price?» or «That price seems really high.» Clearly, perceived value was coming into play. So how much did these customers expect this product to retail? One show attendee gave the best clue about the perceived value — «It seems like this would go for about $50 at a store like Wal-Mart.» What is the point of all of this? As you look for potential wholesale suppliers for your online store, it will be important to know about perceived value. Consider the following questions when evaluating a supplier who has made their own product: 1. How has the response been to the price points of the product(s) you are offering? 2. Has the product been market tested at a trade show? How was the response? 3. Does the product sell itself at this price point? 4. Has anyone done a market appraisal of the product? Getting a barometer on the perceived value will be an important ingredient to your online product portfolio. Armed with just a few of these questions, you will have done yourself justice.